Novolipetsk Steel (NLMK), the LSE-listed leading Russian steel producer, today announces its consolidated US GAAP results for Q1 2008.

Key financials for Q1 2008 ended March, 31, 2008 

* EBITDA = Net income (post share of minorities) + income tax ± interest expense/(income) + depreciation ± losses/(gains ) on disposals of property, plant and equipment ± losses/(gains) on financial investment ± losses/(gains) from disposal of subsidiaries + accretion expense on asset retirement obligations – gains on loan restructuring.
** Q1 2008 and Q1 2007 are official reporting periods. Q4 2007 figures are derived by computational method. This assumption is related to the calculation of financial indicators by segments.

Highlights:

- Strong financial performance in Q1 2008:
    - Revenue amounted USD 2,353.3 million (+34% year-on-year)
    - Operating cash flow reached USD 250.1 million
    - EBITDA was USD 875.7 million (+17% year-on-year); EBITDA margin was 37%
    - Cash and cash equivalents as of March 31, 2008 amounted USD 1,181.4 million

- “Sustainable Growth Strategy” continued on track in Q1 2008:

  - In January 2008, NLMK reached an agreement to acquire 100% of the trading companies Novexco Limited, Cyprus and Novex Trading S.A., Switzerland. The EUR 77.1 million transaction was completed in May 2008; 

  - In February 2008, NLMK reached an agreement to amend the terms of its contract with Duferco Group. NLMK is granted a perpetual option to acquire one share in SIF (the joint venture with Duferco Group). Furthermore, from December 18, 2010, NLMK is granted a perpetual option to buy all of Duferco Group’s interest in the Joint Venture at a price based on the change in the consolidated shareholders equity of SIF between October 2006 and the exercise date.

- Total capex for Q1 2008 was USD 355.2 million. Major projects included:
  - Refurbishment and commissioning of the Concasting Machine (CCM-6), which has a 2.5 million tpy capacity.  The upgrade improved CCM-6’s technical capabilities and enabled an increase in production capacity of 1.2 million tpy;

  - VIZ-Stal launched the production of 0.23 mm thick transformer steel sheets used in high power transformers. The first deliveries have already reached our customers;

  - The Strategic Planning Committee has approved the key parameters of the Group’s Technical Upgrading Programme, covering the period up to 2015. NLMK plans to increase crude steel production volumes at NLMK’s Russian sites to 22 million tonnes by 2015, while flats and longs production volumes will increase by up to 6.9 and 5.9 million tonnes respectively. NLMK is developing a high value added product portfolio focused on the domestic market. The Company expects consumption to grow in the construction, mechanical engineering, automotive and infrastructure sectors.  

- In Q1 2008 NLMK implemented a number of asset optimization and management system improvement projects. Major projects included: 

  -  NLMK continues the integration of acquired assets of the long products segment. Currently, NLMK representatives hold the key management positions at all of Maxi-Group’s production sites;

   - In March 2008, NLMK posted a mandatory offer to Stoilensky GOK’s minority shareholders to purchase outstanding ordinary shares. In May 2008 the Company completed the acquisition of 3.02% of Stoilensky GOK’s share capital, thus obtaining 100% control over the enterprise. Minority shares were acquired at a price set in accordance with independent appraisers’ reports.  Currently, offers to buy shares have been sent to minority shareholders in Stagdok, Dolomite and Altai-koks 

  - In March 2008, NLMK created the position of Vice President of Information Technology. The new Vice President will lead the work to set up a common information space within the Group and to implement a corporate ERP system.

- The Board of Directors recommended a RUR 3 dividend per ordinary share (1 GDS = 10 ordinary shares) in relation to the 2007 results. Taking into account the interim dividend per share of RUR 1.5, approved by the General Shareholders’ Meeting in September 2007, the Board of Directors recommended an additional payment of RUR 1.5 per NLMK share at the time of the full year results.  The resolution for the dividend payment has been submitted for the General Shareholders’ Meeting approval on June 6, 2008.  

Outlook
Prices for steel products continued to grow in Q1 and Q2 2008 following an increase in raw material costs and consistently high demand in the world market. We currently anticipate a mid-year flattening of steel prices.

In 2008, steel production volume at our main production site in Lipetsk is expected to reach 9.4 million tonnes (+4% year-on-year). Total steel production volume of NLMK’s Russian steelmaking assets is expected to reach 11.6 million tonnes (+26% year-on-year).  As a result of the increase in production volumes, price growth and the consolidation of Maxi-Group we expect revenues to grow by up to 60% year-on-year. According to our preliminary estimates, EBITDA could exceed the 2007 level by 35-40%.